Money management is an important part of your financial approach especially if you are a freelancer. In fact, choosing this career changes the dynamics of your finances. In most cases, you have less to worry about when you are clocking in at regular hours in a week in an office. That changes when you decide to tread your own path and pursue a freelancing career.
There are many reasons why people would choose to be freelancers over a regular paying job. Some prefer the flexibility on the working hours. Rather than be tied up on a regular 9 am to a 5pm type of job, they get to work on their own time. On a certain extent, some feel they are being proactive by not having to deal with losing a regular job.
However, for most people, you might be in a freelancing work because you are pursuing your passion. This is a common scenario for a lot of people who choose to be self-employed. This happens when the career path they want to take is not being offered by any company at the moment. According to Forbes.com, there were about 55 million freelance workers in 2016. They made up about 35% of the entire workforce earning about $1 trillion income collectively.
Some of these are stay-at-home parents trying to do a million things at once and still pursuing their passion. In these cases, money management becomes a little more challenging but the need does not diminish. In fact, it is even more important than it has ever been. This is because they now have to be on top of more things when they decide to freelance and it is easy to overlook their finances. Here are a few things you can look into as you manage your finances as a freelancer.
You have to lock in your long term goals
Your long term goals have to be in place when you decide to go freelancing. For financial reasons, this keeps you grounded making money management a little easier to accomplish. The idea is that as you have goals to aim for, you are able to lay out your finances in line with your objective. Think of your goals as a lighthouse that you can see from afar. With it, you are able to take decisive steps now to get to it in the near future.
Retiring at age 50 as a freelancer can be a long term goal. With that in mind, you can then plot out the steps you need to take now to reach that objective in the future. How much do you need by then? How many years do you have until you reach your desired retirement age? Setting a goal can help you formulate concrete steps that bring you closer to your dreams.
You need a budget in money management
If you decide to take on a freelancing career, you would need a solid household budget to guide your everyday spending. This will help you stay on top of your finances and allow you the ability to make changes as you go along. Money management becomes a little easier once you have a budget to rely on in getting your financial house in order.
This is not much different from what you would put together when you were still holding a 9 to 5 regular day job. You still need to put together and tally your income. After which, you combine all your expenses and try to determine if you are earning enough to cover all your payments. This is where you continuously tweak and adjust the entries on both sides to make sure that you are not getting into a deeper debt month on month.
You have to follow that budget
There is a big difference between having a budget and following it. Just like having a diet at the start of the year. You knew how you wanted to eat. There was a list of food that was supposed to fuel your active lifestyle for a better you. However, that list never saw the light of day. They remained on the shelf or in your smartphone unopened.
Businessinsider.com shared that people are shunning away from small purchases particularly apparel. Most people are opting for bigger ticket items such as cars, homes and even swimming pools. This can be the effect of a resurging economy after the 2008 recession. The challenge for you as a freelance is to stick to your budget to help you with money management better in order to reach your goals in life.
Your short term goals change much quicker
When you were still enjoying a steady and stable day job, you were able to plan for months at a time. As a freelancer, this would be a luxury. As you pin down your long term goals, your short term objectives become moving targets. This is because for most freelancers, jobs come and go and there will be good days and bad days.
These factors directly affect the amount you can earn in any given month. There can be months where you can book multiple projects and earn a lot of money. Then there comes a stretch where you find it hard to nail down projects. As you fix your sights on your ultimate goals in life, the steps you have to take to get there keeps shifting and you need to be able to adjust to it.
You will attend to everything on your own
This is one of the realizations that you will learn to embrace once you take on a freelancing career. This is a little more challenging and harder to accept if you are coming from a regular day job. Back then, you had an HR department that took care of a lot of things for you like filing your taxes. You might have medical benefits then as well as paid leave credits throughout the year.
As a freelancer, you now have to attend to all these things and more. You need to look for your own health coverage plan. For your taxes, you have to find your own accountant or bookkeeper to help you file your taxes. If your previous employer offered a retirement for employees, you now have to find a way to put money into your retirement on your own.
You now have to look for ways to make sure that you are able to plan for your retirement. What do you do with your 401(k)? USAToday.com explains that it is not a good idea to roll over your 401(k) into an IRA account. Do you simply leave it with your former employer? Do you use traditional or ROTH IRA? These are some of the things you need to do on your own.
Money management for freelancers is a lot more challenging when you are looking at your long term goals. This is because you now have to do a lot more things on your own compared to having an HR department having your back. However, you also need to look at the positives when you do choose to work as a freelancer. You get to see your children grow up and you have an active role in it. You also get to chase your dreams and live your passion. This allows you to wake up every day doing something you love.